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Free market solutions in health should be allowed to flourish

Christopher Snowdon

11 July 2013

Are free markets incompatible with good health? To hear some of the rhetoric that comes from the medical establishment, you might think so. If the solution to every problem involves banning advertising, raising prices and restricting availability, you might easily conclude that competitive capitalism is the disease and government regulation, including state monopolies and outright prohibition, is the cure. From this perspective, the purveyors of food, alcohol and tobacco are hell-bent on pushing the most unhealthy products on the public at high volumes and at the lowest prices. It is the duty of a small band of health experts acting in the ‘public interest’ to save the masses from perdition by taming industry.

This is a crisp and exciting narrative, but it isn’t true. Contrary to the dominant anti-corporate viewpoint, the profit motive is not unhealthy. Businesses have an obvious incentive to keep their customers alive and customers have a strong incentive to seek out healthier options. Any company that can make a scientifically sound health claim gains a competitive advantage over its rivals. Health sells. The market is awash with low-calorie meal deals, low-salt baked beans, sugar-free soda, polyunsaturated fat, mineral water, ‘good bacteria’, organic baby food, ‘omega 3’ and green tea. The public health lobby can take some credit for making consumers health conscious, but it is industry that satisfies their demand.

In contrast, government regulation can lead to negative health outcomes. Markets can correct themselves long before government failures are even acknowledged, let alone rectified. A striking example of this can be found in a new IEA report Free Market Solutions in Health, which looks at the new wave of safer nicotine products, notably e-cigarettes and Swedish snus. Over a million Britons, almost all of whom are smokers or ex-smokers, use e-cigarettes, and there is growing evidence that the product is a satisfactory tobacco substitute for many hardened smokers. Swedish snus, a smokeless tobacco product, is widely credited for Sweden having the lowest smoking rate and the lowest lung cancer rate in Europe. Both products are vastly less hazardous than cigarettes and yet both are banned in many countries thanks to a combination of the precautionary principe, anti-industry sentiment and moral puritanism. In the EU, the sale of snus is illegal (with the notable exception of Sweden) while e-cigarettes may soon be regulated as medicinal products.

It is neither consistent nor ethical to prevent smokers from switching to much safer alternatives. Efforts to prohibit or medicalise e-cigarettes and snus are a far greater threat to public health than the products themselves. As former ASH director Clive Bates puts it, ‘if you over-regulate a new, disruptive, low-risk alternative to the dominant and deadly cigarette, you simply protect the worst products from competition.’ Whether by accident or design, the beneficiary is the incumbent industry, not the consumer.

The neo-prohibitionist approach to public health has raised barriers to entry and excluded new entrants, thereby making the nicotine market less competitive and less innovative. The nicotine market is currently split between Big Tobacco selling an unhealthy product (cigarettes) and Big Pharma selling an unappealing product (nicotine replacement therapy). The free market is capable of filling the middle ground with products like e-cigarettes if only the government is prepared to step back and allow innovative recreational nicotine products to gain popularity. In practice, this means taxing and regulating e-cigarettes as ordinary consumer products to ensure basic standards of quality while allowing snus to be sold with accurate labelling to inform customers of its risk profile relative to cigarettes.

There is clearly strong demand for safer alternatives to cigarettes and the technology exists to satisfy it. Despite the triumphalism of the anti-smoking lobby in recent years, there are more smokers in the world today than there have ever been. There will be even more tomorrow. Cigarette smoking is not going to disappear as a result of trivial regulations such as graphic health warnings and display bans. Products such as e-cigarettes have an extraordinary potential to shift the market away from smoked tobacco and are therefore an existential threat to the tobacco industry as we know it. They are also, ironically, an existential threat to the abstinence-only faction of the anti-tobacco lobby, and that explains at least some of the resistance to them.

We argue that the interests of consumers are nearly always better advanced by the provision of accurate information and free choice than by prohibitions and restrictions on commercial speech. The orthodox tobacco control model of incremental tax rises and ever-larger warning labels is yielding diminishing returns and is fraught with unintended consequences. If free market solutions exist which encourage healthy outcomes without infringing personal liberty, regulators should have the good sense to take the day off.

Conservatives talk of free-market solutions but seem to have no idea on how to get there. The FairTax will get us there because, unlike the income tax of today, it has no tax breaks to employers owning the insurance policies, so people would move to individual policies. Also, unlike the income tax, the FairTax is pro savings so people will move to owning high deductible medical insurance policies. With these, people will pay for most of their medical care out-of-pocket. This puts them in charge so they will be able to choose their doctors and hospitals

Conservatives talk of free-market solutions but seem to have no idea on how to get there. The FairTax will get us there because, unlike the income tax of today, it has no tax breaks to employers owning the insurance policies, so people would move to individual policies. Also, unlike the income tax, the FairTax is pro savings so people will move to owning high deductible medical insurance policies. With these, people will pay for most of their medical care out-of-pocket. This puts them in charge so they will be able to choose their doctors and hospitals.

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